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Today TaxMama hears from Scott in the TaxQuips Forum who needs guidance. “My mother in law babysits for me, and I pay her a flat amount every month to do so. Her only job is working for us right now. She needs 3 more years of income to earn enough credits to be fully accrued in Social Security. What is our best option? Should we treat her as an independent contractor, or should we issue her a W-2 at year-end?”
Hi Scott,
IRS Publication 15, deals with employees and payroll. Pub 15 has some special rules when it comes to hiring family. When you hire a parent to take care of your child in your home, you do have to put them on payroll, like anyone else you would hire. But you don’t have to pay FUTA taxes on their wages.
Since you are married (not divorced, separated, or widowed), all the other payroll taxes apply. Which means, you will be withholding Social Security taxes – and helping her get her three years!
Since your parent is working as a household employee, you can use Schedule H to report the wages and withholding and FICA/Medicare taxes due. Although Schedule H is part of your personal income tax return, you still need to:
a) Get a Federal employer ID number
b) Prepare a W-2 and give it to Mom in January.
c) And you need to register with the state payroll department and file all the usual state payroll tax returns.
Note: Since it’s already December, if Mom has been working for you all year, register with IRS and your state right away to get the ID numbers. File ONE payroll tax return with the state for December wages, treating all the earlier months as advances against the one paycheck.
Perhaps you want to get a tax pro to help you out with this catch-up procdure, at least for this year. You may be able to handle it yourself next year, with a little hands-on guidance. Get on this immediately.
And remember, you can find answers to all kinds of questions about payroll tax issues, and other tax issues, free. Where? Where else? At www.TaxMama.com.
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{ 15 comments… read them below or add one }
That IS a different twist on the MFS limitations~Great catch indeed!
I am currently disabled due to a breakdown because I chose a bad husband and job. I want to be an Accountsnt for the IRS so badly. Weird goal or dream maybe? But it’s mine and it’s real. I watched losers hide profits from our State and Country and it makes me sick! They don’t ask for much? Neither does Jesus and He paid His taxes! I have 1 year of Office Systems Tech at ICC in Tupelo, MS from 97 I think? And I was working on a home Accounting course through a College up North. Due to the surprise of my husband’s missing $30,000 and the lady he left me for’s new chest….. I was unable to focus and finish the course. I lost my “Mo-Jo”. How do I get it back and what’s the quickest way to work with our IRS and move away from this area of betrayal and start a new more fulfilling life? Lest I die…….
Dear Terrie,
At least you still have your sense of humor.
Why not just apply for a job at the IRS and see what you qualify for?
Some jobs may not require degrees.
http://jobs.irs.gov/
One thing you can do to get experienceand get your Mo-Job back is to become a VITA volunteer.
http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers
It will get you out there among people, working with tax issues and dealing with the local IRS folks.
It’s also a way to make contacts – and perhaps get an inside track on job.
Good luck!
Hugs
Eva
Wow… That sounds wonderful! I will take your advice and appreciate your response. You have certainly made my day better and given me hope for a better tomorrow. Thank you so much!
Returned hugs,
Terrie
RE: Mortgage Interest
While part of the housing mess was caused by banks/mortgage lenders makiong unqualified loans,I have yet to see any crack down on the lack of information these lenders are making regarding refinancing or home equity loans. Quite a number of taxcpayers are now finding out because of loan limitations on a HELOC and because the money taken out on a refinance was not used to acquire or improve their property, a large percentage of their mortgage interest is no longer deductible. I think people need to write to their Congressman asking them to have the IRS put pressure on the loan industry to have a disclaimer page made up as part of the package, which explains the potentia disallowance.
Aloha Tax Mama…
I have new clients, a couple with four children, who went to a local Franchise office Tax Preparer last year and was told that they could only claim 2 of their children; the naive sweet Mom, asked what should they do with the other 2 children and the Tax Preparer told them to “give them to someone that needs them”; the couple “gave” the other 2 children to the Mom’s single brother who filed his taxes with the donated children. ….AND they want to know why I can’t do the same!?:)) I might just file this under “The most outrageous”.:)
roz x0x
OK, you’ve got us laughing here.
That IS outrageous.
I’ll try to collect these.
Hugs
Eva
Regarding Goran’s question to you today about splitting the COD income with her son (or was it vice versa), I’m not sure I understand why mom would have to paper file her return. Isn’t there usually a place in the software where the 50%-reduced income can make reference to an explanatory note of why only 50% is being reported without losing the ability to e-file?
Hi Ron,
Definitely not in consumer tax software.
And when it comes to pro software?
I cannot be certain. There are conflicting reports
from the different companies about whether or not
statements go with the electronic file.
I figure, when it comes to disclosures, I’d rather be safe,
than be told later on that we did not disclose and a routine, ordinary
position or computation is disallowed or has to be defended.
It’s not much more work to print out the return and attach a cover letter, as well.
But that’s just me.
Hugs
Eva
Aloha…I had a client come in yesterday that is married with 4 children;however, his wife ran away to Kansas with his cousin and the 4 children. Even though he has not seen his wife or children for two years, he still has to file MFS ? Yes? …and what about other things like itemized deductions? (What one does the other one needs to do ?)
(Separate issue,FYI,wife managed to get court ordered child support of $500.00 per month;never heard of mandatory child support,while still married.)
May the Force be with you.:)
Roz
xox
PS. …he works as a Dishwasher for restaurant in Waikiki, so not a lot of money for legal stuff.
Hmpf, Roz!
If she ran off with someone, I say, let HIM support her and her children.
Alas, he files as MFS.
Should look into getting a divorce.
But…at the level of income a dishwasher has,
the tax bracket is probably similar – MFS or MFJ.
As to itemized deductions?
If he always itemized, he should continue.
She knows it. It’s up to her to figure out how to file her return.
However, if she has ANY character at all, she should split the children
with him for HOH and any potential credits. A child does not have to
live with you to be a dependent, etc.
Hugs
Eva
Thank you! I don’t think she was there the
day they were giving out “character “:)
xox. Roz
Regarding the alleged overpayment of insurance proceeds, since the payment was made as a death benefit, the insurance company ;should have issued Form 712 explaining how much of the payment was the proceeds of the policy, and how much was interest on the proceeds, and return of premium. No 1099 Misc. should have been issued. The 712 goes to the IRS and explains the breakdown of the payment. The widow should ask the insurance company for Form 712 and a correction to the Form 1099 Misc. showing 1 non=-employee compensation.
You write: “So, if your gardener is strictly working on your personal home, not for a home office…No! You don’t need to send him a 1099-MISC.” – My question: What if you take a home office deduction? I use about 20% of my home as an office and take the deduction. Does that trigger anything for the gardener? I pay under $1000 a year to him.
Well then, Rich,
Clearly, he is NOT just “working on your personal home”, is he?
Send him a 1099 for the full amount you pay him. Deduct only 20% net on the office in home. (You will enter 100% and the form will use 20% based on the sq ft you enter on Form 8829.)
Hugs
Eva